The Euro and the Crisis: Evidence on Recent Fiscal Multipliers

In response to the current economic crisis, many countries around the world adopted large fiscal stimuli, thus reviving the question of fiscal multipliers. This paper is a first attempt for a systematic analysis of the behaviour of fiscal multipliers in the Eurozone countries. Using Panel Vector AutoRegressive (PVAR) estimations for quarterly data on fiscal variables for the 1999-2012 period, we unveil several interesting results. First, tax multipliers are little affected by being a Eurozone country or not, or by experiencing the Eurozone crisis. Second, on the contrary, spending multipliers exhibit major differences depending on the considered group of countries; in particular, being part of the Eurozone or expecting to adopt the Euro in the future makes the response of output to expenditure shocks more Keynesian, as this is also the case in the group of Eurozone countries affected by the crisis.